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Bramwell's Lunch Beat: Pfizer Backlash, Medtronic Unfazed, China and IFRS

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Nov 24th 2015
Staff Writer and Editor AccountingWEB
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Pfizer inversion puts pressure on US lawmakers to revamp tax rules
Richard Rubin of the Wall Street Journal wrote that Pfizer Inc.'s decision to escape the US tax system by putting its legal headquarters in Ireland has stoked another round of calls in Washington to revamp tax rules and protect the corporate tax base. But even Pfizer's merger with Allergan PLC, the largest inversion deal ever, doesn't look likely to dislodge the obstacles preventing action. Political and technical hurdles to overhauling the tax code have stymied lawmakers for years. Now, a fragile consensus that had begun to take shape between President Obama and congressional Republicans is under attack from both sides. Business groups and lawmakers said they hoped the deal could catalyze congressional action to make staying in the United States more attractive. “If this isn't a wake-up call, I don't know what is,” said Rep. John Delaney (D-MD).

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Politicians slam tax-avoiding Pfizer-Allergan deal
US politicians condemned Pfizer's deal with Allergan as a tax dodge on Monday, bringing another round of hand-wringing in Washington over the corporate tax code, though legislative action before 2017 is unlikely, wrote Kevin Drawbaugh and Emily Stephenson of Reuters. Democrats heaped the most criticism on the New York-based drugmaker, with Hillary Clinton accusing Pfizer of using legal loopholes to avoid its “fair share” of taxes in a deal that she said “will leave US taxpayers holding the bag.” Sen. Bernie Sanders (I-VT), Clinton's chief rival for the Democratic nomination, said the deal “would allow another major American corporation to hide its profits overseas.” Republican front-runner Donald Trump, who has called for a corporate tax overhaul, called the deal “disgusting” in a statement, saying “our politicians should be ashamed.”

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Experts: US unlikely to block Pfizer-Allergan deal
Despite the Obama administration's stepped-up regulatory attack on tax inversions, experts say the rules likely won't block the Pfizer-Allergan deal, wrote Kevin McCoy of the USA Today. Why? Because the new deal technically is structured with Allergan acquiring Pfizer, even though the Dublin-headquartered company is far smaller than its New York-based merger partner. Allergan shareholders would own 44 percent of the new company while Pfizer investors would own 56 percent. Pfizer's ownership share would fall below the 60 percent threshold to qualify as a tax inversion under the US tax code, said Robert Willens, an international tax law expert based in New York City. “If it's not 60 percent, it's not an inversion,” said Willens. Treasury officials “may not care for”  the pharma industry mega-deal, “but there's not a lot they can do about it,” he added.

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Medtronic not concerned about latest US efforts to curb tax inversions
Medical-device company Medtronic PLC said on Nov. 20 that the US Treasury Department's latest effort to curb the tax benefits of companies moving their headquarters overseas wouldn't “have a material financial impact” on the company, wrote Ezequiel Minaya of the Wall Street Journal. Medtronic acquired Dublin-based Covidien PLC earlier this year. That acquisition allowed Medtronic to move its headquarters from Minneapolis to Dublin. Medtronic didn't explicitly reference any tax benefits when addressing its move to Ireland but said that the “acquisition of Covidien, which closed in January of 2015, was undertaken for strategic reasons and has created a company that is positively impacting the lives of more patients, in more ways, and in more places around the world.”

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China seeks to deepen ties with global accounting rules
China will look at how its international companies could make greater use of cross-border accounting rules to better inform investors, wrote Huw Jones of Reuters. The International Accounting Standards Board (IASB) and the Chinese Ministry of Finance said they had created a working group to build on a decade-old cooperation agreement. The earlier agreement led to China moving its bookkeeping rules substantially in line with the IASB's, used in more than 100 countries, including within the European Union, but not the United States. More widespread use of International Financial Reporting Standards (IFRS) could help reassure investors from outside China about the quality of accounts published by Chinese companies. While stopping short of outright adoption of IFRS, such backing from the world's second-largest economy is a big boost for the IASB.

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Quick Links:

  • While Pfizer gets a tax break, many investors face a hit (Wall Street Journal)
  • Clinton, Sanders, Pfizer and America's horribly cramped tax debate (Washington Post)
  • Pfizer-Allergan tax magic should disappear (Bloomberg View)
  • White House: Congress should prevent tax inversions (CNBC)
  • CEO: Clinton, Trump tax comments ‘a little rich' (CNBC)
  • 5 global drugmakers pay the lowest taxes (USA Today)
  • Tax impact of Sanders' proposals still up for debate (USA Today)
  • Tax credits are easy – and a loser's game for liberals (Tax Analysts)
  • Clinton's caregiver credit adds to her list of tax breaks, sharpens her contrast with the GOP (TaxVox)
  • Two important new retirement savings initiatives from the Obama administration (TaxVox)
  • VW faces fresh probe over tax violation claims in Germany (Bloomberg)
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